- Crude production fell to 2.11m barrels a day from 2.18m
- Manufacturing, banking and real estate declined in quarter
Nigeria’s economy risks falling into recession after it shrank in the first quarter as oil output slumped and the manufacturing, financial and real estate industries declined.
Gross domestic product in Africa’s largest economy contracted by 0.36 percent from a year earlier, the Abuja-based National Bureau of Statistics said in an e-mailed statement on Friday. This compares with growth of 2.11 percent in the previous three months. The median of 17 economist estimates compiled by Bloomberg was for growth of 1.8 percent. The last time the economy contracted was the second quarter of 2004, according to data on the central bank’s website.
Falling prices of crude, from which Nigeria derives up to 70 percent of state revenues, have caused the nation’s economic outlook to deteriorate as the government struggles to pay salaries and stimulate growth, forcing it to increase borrowing. President Muhammadu Buhari on May 6 signed a record budget of 6.1 trillion naira ($30.6 billion) with a deficit of 2.2 trillion, or 2.14 percent of GDP.
Buhari has resisted calls from investors to devalue the naira, which has been pegged at 197-199 per dollar for more than a year. Foreign-exchange trading restrictions and import curbs have led to shortages of goods from gasoline to milk and contributed to the contraction in factory output in the quarter.
“It’s inevitable that we’ll go into recession,” Pabina Yinkere, an analyst at Vetiva Capital Management Ltd. and the only contributor to Bloomberg’s survey who predicted a contraction, said by phone from Lagos on Friday. “I expect the second quarter to be even worse.”
Nigeria’s economic slowdown is exacerbated by the re-emergence of an insurgency in the key oil-producing Niger River delta region. Militants have damaged facilities owned by companies including Chevron Corp. and Royal Dutch Shell Plc, causing output to drop to a 27-year low.
While oil output fell to 2.11 million barrels a day in the first quarter, from 2.18 million a year earlier, according to the statistics office, Emmanuel Kachikwu, the nation’s minister for petroleum resources, said last week production has slumped to 1.4 million barrels a day due to the attacks. Oil contributed 10.3 percent to GDP in the quarter through March, according to the statistics office.
“It is now likely that Nigeria’s economy will contract over the year as a whole,” John Ashbourne, a London-based Africa economist at Capital Economics Ltd., said in an e-mailed note to clients. “We have long warned of a slow-burning crisis in Nigeria. It now seems that this view was too optimistic: the country is headed into a full-blown crisis.”
Nigeria, one of Africa’s biggest oil producers, has been crippled by fuel shortages which the statistics office blamed for an 8 percent drop in labor productivity in the fourth quarter. The nation imports at least 70 percent of refined fuel because it lacks sufficient refining capacity. Unemployment rose to 12.1 percent in the first quarter from 10.4 percent in the previous three months, the statistics office said in a separate report.
“We have one more month to evade a recession, and that’s just not going to happen. Let’s not fool ourselves,” Bismarck Rewane, chief executive officer of Lagos-based consultancy Financial Derivatives Co., said by phone. “We’ve had strikes, petrol queues, and disruption of oil production, all showing we’re headed to another negative quarter.”
The government last week announced a 67 percent increase in the price of gasoline hoping it will ease fuel shortages, even as it adds to inflation pressures. The inflation rate climbed to an almost six-year high of 13.7 percent in April, driven by the increasing cost of fuel. Only two of 20 economists in a Bloomberg survey forecast the central bank, which tightened policy by a full percentage point in March, will leave its benchmark rate unchanged at 12 percent on May 24, while the rest predict increases of between 50 basis points and 250 basis points.
The contraction “shows that Nigerians and particularly the central bank should now reconsider the tightening stance they have embarked upon,” Ayo Teriba, chief executive officer of Economic Associates Ltd., an advisory firm, said by phone from Lagos.